Coal dilemma

SHARE | Monday, 16 November 2015 | By Kabelo Adamson

From [L-R]; Siwawa, Grynberg and Jefferies

The coal reserves that Botswana boosts of are not necessarily a panacea for the struggling mineral-led economy. Climate change fears are winning over the world and now even the presumed market for the mineral appear to be washing its hands off it. And there lies the country’s dilemma – to go with clean energy proponents and save the world or push its ‘dangerous’ mineral into the world. And looking at the local effects of climate change from the current ravaging drought, Botswana is at crossroads. KABELO ADAMSON reports

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“Coal is in terminal decline, and those countries investing in coal for export markets are making reckless decisions” – Greenpeace

The country’s quest and ambition to derive maximum value from the exploration of the coal mineral through export may go up in smoke as appetite for coal resources slows down in leading economies. The demand for coal mineral is said to be headed for a historic decline as main consumers such as China change outlook with regard to the mineral as countries shift to fight air pollution. This is threatening to blow up Botswana’s efforts for mineral diversification.Botswana is endowed with huge coal deposits projected above 200 billion tonnes, most of which still remain untapped and was poised to replace diamonds as a significant contributor to the GDP once the gem stones have been depleted. News agency, Bloomberg reported this week that the coal mineral will suffer a decline in consumption driven by China’s battle against pollution, economic reforms and efforts to promote renewable energy.Why coal is shunnedDominant of the reasons why most economies are about to shun coal as a primary source of energy is because emissions of greenhouse gas carbon dioxide from the use of coal to produce electricity is believed to be a major contributing factor to global warming and climate change.Pressure is also mounting from environmental activists compelling nations to reduce their carbon dioxide emissions and instead shift to the use of renewable energy initiatives such as solar and wind energy to preserve the environment as the world battles with climate changes.The claim that coal demand is headed for a monumental decline will come as some sort of discouragement to the country’s efforts as it attempts to positions itself as a leading coal exporter having successfully negotiated with countries such as Namibia for the construction of the Trans Kalahari Railway (TKR) line that will provide easy access to the market through the Walvis Bay Sea Port.As it stands, Botswana has only one operational coal mine, Morupule Coal Mine which produces coal for the Morupule Power Station. Other coal fields in the eastern part of the country are still in the formative stages of exploration and development. These include Sese, Mmamabula and Mmamantswe coal projects.Economists’ viewsManaging Director at Econsult firm, Dr Keith Jefferies said the decline of coal consumption in China is one of the factors behind a declining international price of export coal. “The main impact of this on Botswana is that it affects the viability of the proposed Trans Kalahari Railway line, which needs a coal price above a certain level in order to make it viable,” Jefferies said, reasoning that this will serve as a dipstick to determine whether there are investors willing to finance the TKR and the associated coal mines.Jefferies said the decision by China to cut on import of coal as it struggles to fight challenges associated with carbon emissions may not be a dead end for the country’s desire to export to bigger economies. He believes India, which is among the leading importers of coal, offers a big opportunity for Botswana’s coal mineral and it seems is set to increase its coal imports to meet its power generation demands and this will, he says, have an impact on long-term prices.Jefferies is of the view that the international appetite for coal is declining, due in part to concerns about carbon emissions and global warming, which will impact on the prospects for large scale investment in coal exports, especially when Botswana is likely to be a relatively high-cost producer due to transport costs and distance to ports.“So if coal is to be utilised, it will be necessary to consider alternative uses that are economically viable,” said Jeffries. China, which is stated to be responsible for about half of global coal demand, coal use in power sector is said to have fell more than four percent in the first three quarters of the year and imports declined 31 percent. Botswana can monetise its coalDespite the headwinds facing coal prospects, an economist at FNBB Moatlhodi Sebabole believes coal projects still remain viable as it can be used to generate power and is pivotal to the government’s strategy to be a net exporter of energy by 2018. Sebabole said China’s closing or reduction of desire for coal import would not spell doom for Botswana coal as other options are available to monetize the resource.Even if China or any other coal importing country was to cut on their coal import, Botswana may not find herself stranded with the coal resources. Sebabole said the Coal Roadmap commissioned by the government studies a number of options such as export of power to regions, domestic power, cement, coal-to-liquids, coal-to-gas, fertiliser and coal exports to international markets.The success on export coal will be heavily reliant on sound logistical measures in place such as the railway line which Sebabole said will attract high capital cost, estimated at $15 billion with a long payback period which may be difficult to get financing due to dependence on market for coal-fired power generation and inter-government coordination issues.“Botswana’s coal high cost– hence marginal supplier and it encompasses long-term reliability of international seaborne coal market. There is also coal competition from countries like South Africa, Mozambique, Indonesia and Australia, as well as other sources of power (solar, gas) – coupled with environmental/global warming issues,” said Sebabole.In addition, Sebabole said evidence has shown that coal-fired power stations are becoming increasingly difficult to finance and the coal prices are expected to decline further in the medium-term.

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Greenpeace warnsBloomberg reports that since 2013, China’s electricity consumption growth has largely been covered by renewable energy plants. The news agency quotes a conservational activist at environmental group Greenpeace saying, “Coal is in terminal decline, and those countries investing in coal for export markets are making reckless decisions.” The agency further quoted an analyst at Bloomberg Intelligence in London saying that as policy makers get serious about climate change, there is expectation to see step up in coal-to-gas switching by power generations. The analyst observed there is likely to be more stranded coal assets - both mines and coal fired power plants.Charles Siwawa, a CEO of Botswana Chamber of Mines - a body serving the interests of the mining and exploration companies - said if China goes ahead to cut or reduce drastically the import of coal that will have an impact on the country’s future prospects of become a leading coal exporter.Siwawa said the only operating coal mine, Morupule produces coal which is used to power the adjacent thermal power station.Renewable energy taking overWhile still at BIDPA, Professor Roman Grynberg produced a paper on Coal Exports and Diversification of Botswana Economy, in which he noted that there have been significant changes in renewable energy policy in Botswana’s potential markets, China and India.“China has recognised the limits of its own coal reserves and has aggressively moved towards the development of renewable energy sources. China is now the world’s largest producer of solar panels and the largest generator of wind power. India has moved more tentatively on its renewable energy policy but has also begun the development of tax and emissions trading that will limit Green House Gas emissions,” Grynberg wrote.In his report published in 2012, Grynberg observed that in light of the expected decline in diamonds revenues post 2027 coal will be one of the most important new sectors for Botswana that will cushion but not fully absorb of the decline in diamond revenues.One of the risks that he singled out was the risk associated with climate change policy at regional and international level.“The shift towards the use of renewable energy now seems to be an inexorable change that will profoundly affect electricity generation over the current century and will therefore affect those exporting fossil fuels such as coal,” Grynberg wrote.Climate change policies It now appears that the climate change policies are being seriously implemented before Botswana can even realise its ambition to become a major exporter of coal. The ongoing United Nations 21st Conference of Parties which is being held in Paris until December 11, 2015 seeks to deliberate on matters that will keep global warming below two (2) degrees Celsius which is the agreed threshold that the planet will not be let to exceed if catastrophic effects on climate change are to be avoided, the environmental activist group, Greenpeace said this week.The group claims the effects of climate change which are already being felt globally at the level of under 1 degree Celsius is making some people from other parts of the world seek official climate refugee status in addition to causing extreme weather conditions. Southern Africa is currently reeling from the worst drought in years. With no rain in most countries water is now being rationed and food supply is running dry as the first summer rains are yet to fall for ploughing season to start.